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Health system spending on the response to COVID: new report

Introduction by Croakey: COVID’s impact on health expenditure in Australia has been lower than in many other comparable countries, according to a new report from the Australian Institute of Health and Welfare.

This reflects a combination of “good luck and good management early in the pandemic” that enabled Australia to avoid the massive hospital caseloads seen elsewhere in the world, according to health policy analyst Charles Maskell-Knight.


Charles Maskell-Knight writes:

The Australian Institute of Health and Welfare has released a report on health spending in response to COVID-19 for the three years 2019-20 to 2021-22.

It does not contain any great surprises.

Over the three years total spending (including health spending in the aged care sector) amounted to $47.9 billion.

About three-quarters of this was funded by the Commonwealth ($35.1 billion) and a quarter by the states and territories ($11.9 billion). Contributions by individuals were less than $900 million – although as discussed later, this may be a low-ball estimate.

Impact on total health spending

Over the three years, COVID-19 spending amounted to an average 7.2 percent of total health spending. However, in 2021-22 the proportion was 10.9 percent, driven by spending on vaccines and vaccination in that year.

The report finds that over the three years “Australia’s health expenditure was two percent higher than expected, based on a linear forecast of the ten years preceding COVID–19”. This was one of the lowest increases in the OECD.

While the report does not explore the reasons for this relatively low increase, I believe there are two factors at play. The first is that COVID-19 spending was offset by reductions in other areas as elective surgery was cancelled and many people avoided attending community based health services such as dentists, physiotherapists and optometrists.

The second factor is Australia’s success during 2019-20 and 2020-21 in minimising infections and hence the demand for expensive hospital services. During those years there were just over 7,100 hospital admissions with a COVID-19 related diagnosis. By contrast, during the northern winter of 2020-21 hospitals in New York State (with a population 80 percent the size of Australia) admitted that many patients in just over a week.

Even when the number of infections soared in 2021-22, widespread vaccination meant that the hospitalisation rate was only about three percent of cases (compared with over 20 percent in earlier years), and only three percent of admissions received ICU treatment (compared with over seven percent in earlier years).

Over the three years covered by the report spending on hospital services was only 15 percent of total COVID-19 health spending.

The National Partnership on COVID–19 Response (NPCR)

The Commonwealth and states and territories spent just over $25 billion under the NPCR.

As well as supporting hospital services, the NPCR covered spending by the states on “public health activities such as securing additional emergency PPE supplies, providing funding to expand critical ICU and ventilation capacity, boosting contact tracing and public health communication, supporting additional cleaning in hospitals, schools and public transport, and the vaccinations program”.

In addition, the Commonwealth made payments of $1.3 billion to support private hospitals’ financial viability.

Other Commonwealth payments

The Commonwealth spent about $22 billion outside the NPCR.

This included $5 billion on GP services, including $4.3 billion on telehealth services, and $2.8 billion for referred medical services – mainly testing through the MBS at a cost of $2.1 billion.

The Commonwealth also spent $2 billion in COVID-19 related services in the aged care sector, including workforce support and COVID-19 preparedness.

However, most Commonwealth spending was on public health measures, including the vaccine response and “protective and preventive measures”.

By the end of 2021-22 only $100 million had been spent on PBS-listed COVID-19 antivirals.

Individual spending

According to the report, spending by individuals on COVID-19 related health items and services was $878 million. This included $1.3 million in co-payments for PBS antivirals, and $97,603 in out-of-pocket costs for the 62 million MBS services provided to treat and detect COVID–19. As the report observes, “this low cost across the three years reflected the high bulk billing rate for these services”.

This low cost to the population for these clinical services reflects the Medicare system working at its best, providing access to all patients to essential services at virtually zero cost. If only the system could work like this all the time!

The report estimates the cost to individuals of over-the-counter COVID-19 related products, such as RATs, personal protective equipment and respirators, and sanitizer as $877 million. However, this is based on data from IQVIA, which only captures retail pharmacy sales.

Given the availability of these products through non-pharmacy outlets, including supermarkets, service stations, and “$2-dollar shops”, this is likely to be a massive underestimate. Yet even if the true level of spending was double or even three times that included in the report, this still works out at less than $50 per person per year.

What does all this tell us?

I think two take-home findings emerge from this report.

First, the Commonwealth Government has the deepest pockets, and it will always take the lead in funding services during major health crisis, even if it is not delivering services directly.

Second, a combination of good luck and good management early in the pandemic saved the hospital system from the massive caseloads seen elsewhere in the world, and allowed Australia to get through the worst of the pandemic without excessive cost to the health system.

Charles Maskell-Knight PSM was a senior public servant in the Commonwealth Department of Health for over 25 years before retiring in 2021.  He worked as a senior adviser to the Aged Care Royal Commission in 2019-20


More visuals from the report

The report notes that Australia ranked fifth in terms of lowest percentage of excess mortality during the pandemic compared to 30 other countries. These countries with a range of health systems and economies were chosen for comparison purpose.

Australia’s total excess mortality during the period 2020 to 2022 was four percent higher than the expected mortality, which represents approximately 22,000 extra deaths. The report notes that this figure is different to what the Australian Bureau of Statistics estimated for the same period, which was around 15,000 extra deaths. This is due to different methods used for estimating expected mortality.

The excess mortality for these 30 countries combined was 14 percent during the pandemic, noting the United States’ impact on the average due to their large number of excess deaths.


See Croakey’s archive of articles on health financing